United Project Consultants v Leong Kwok Onn: Negligence, Tax Agent's Duty of Care, Illegality Defence

In United Project Consultants Pte Ltd v Leong Kwok Onn, the Court of Appeal of Singapore heard an appeal against the decision of the High Court, regarding a claim by United Project Consultants Pte Ltd (the appellant) against Leong Kwok Onn (the respondent) for negligence and/or breach of contract in his role as the appellant's auditor and tax agent. The primary legal issue was whether the respondent owed a duty of care to the appellant to warn them of the tax consequences of filing inaccurate tax returns. The Court of Appeal allowed the appeal, finding that the respondent did have a duty to warn the appellant, and that the illegality defense did not apply.

1. Case Overview

1.1 Court

Court of Appeal of the Republic of Singapore

1.2 Outcome

Appeal Allowed

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

United Project Consultants sued Leong Kwok Onn for negligence as a tax agent. The court allowed the appeal, finding Leong had a duty to warn of tax consequences.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
United Project Consultants Pte LtdAppellantCorporationAppeal AllowedWonHee Theng Fong
Leong Kwok Onn (trading as Leong Kwok Onn & Co)RespondentIndividualAppeal DismissedLostN Sreenivasan, Valerie Ang

3. Judges

Judge NameTitleDelivered Judgment
Yong Pung HowChief JusticeYes
Chao Hick TinJustice of the Court of AppealNo
Tay Yong KwangJudgeNo

4. Counsels

Counsel NameOrganization
Hee Theng FongHee Theng Fong and Co
N SreenivasanStraits Law Practice LLC
Valerie AngStraits Law Practice LLC

4. Facts

  1. Appellant adopted certain practices in relation to the treatment of its directors’ fees and the tax returns filed.
  2. Appellant only distributed a portion of the declared fees and retained the difference in a fixed deposit account.
  3. Tax returns only declared the paid fees and not the declared fees due to each director.
  4. Appellant treated the whole of the declared fees as a deductible expense item for income tax assessment.
  5. In 1993, the appellant released to its directors a sizeable portion of the retained fees.
  6. Respondent, as Mr. Ken Tan’s tax agent, received the latter’s additional IR8A form.
  7. IRAS imposed a penalty of $1.707m on the appellant.

5. Formal Citations

  1. United Project Consultants Pte Ltd v Leong Kwok Onn (trading as Leong Kwok Onn & Co), CA 1/2005, [2005] SGCA 38
  2. United Project Consultants Pte Ltd v Leong Kwok Onn, , [2005] 1 SLR 537

6. Timeline

DateEvent
Respondent appointed as auditor and tax agent for the appellant.
Appellant made an additional allocation of directors’ fees from the pool of retained fees.
Respondent submitted Mr. Ken Tan’s additional Form B and IR8A to IRAS.
Process of additional allocation of director's fees repeated.
IRAS queried the appellant about the directors’ fees declared and received for the year of assessment 1997.
Respondent ceased acting as auditor and tax agent for the appellant.
Court of Appeal allowed the appeal.

7. Legal Issues

  1. Negligence
    • Outcome: The court found that the respondent was negligent in failing to warn the appellant of the tax consequences of providing incorrect information to IRAS.
    • Category: Substantive
    • Sub-Issues:
      • Failure to warn of tax consequences
      • Breach of duty of care
    • Related Cases:
      • [2005] 1 SLR 537
      • [1964] AC 465
      • [1999] 2 SLR 449
  2. Duty of Care
    • Outcome: The court held that the respondent owed a duty of care to the appellant to warn it of the tax consequences of providing incorrect information to IRAS.
    • Category: Substantive
    • Sub-Issues:
      • Pure economic loss
      • Assumption of responsibility
    • Related Cases:
      • [1964] AC 465
      • [1995] 2 AC 145
      • [1999] 2 SLR 449
  3. Illegality Defence
    • Outcome: The court held that the illegality defence did not apply because the appellant's conduct was not so culpable as to attract the application of the defence, and the loss suffered was precisely the loss the respondent was engaged to avoid.
    • Category: Substantive
    • Sub-Issues:
      • Ex turpi causa non oritur actio
      • Statutory offence
    • Related Cases:
      • (1775) 1 Cowp 341; 98 ER 1120
      • [1990] 1 QB 1

8. Remedies Sought

  1. Compensation for losses

9. Cause of Actions

  • Negligence
  • Breach of Contract

10. Practice Areas

  • Commercial Litigation
  • Tax Litigation

11. Industries

  • No industries specified

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
United Project Consultants Pte Ltd v Leong Kwok OnnHigh CourtYes[2005] 1 SLR 537SingaporeThe case under appeal; the Court of Appeal disagreed with the trial judge's reasoning.
MK (Project Management) Ltd v Baker Marine Energy Pte LtdCourt of AppealYes[1995] 1 SLR 36SingaporeCited for the principle that an appellate court should not interfere with the trial judge’s finding of fact unless it can be shown that his findings were plainly wrong.
The Sunrise CraneUnknownYes[2004] 4 SLR 715SingaporeCited to contrast judicial attitudes towards claims in negligence resulting in damage to the person or property with claims for pure economic loss.
Hedley Byrne & Co Ltd v Heller & Partners LtdHouse of LordsYes[1964] AC 465United KingdomCited as the landmark decision establishing the principle governing liability for pure economic loss.
Smith v Eric S BushUnknownYes[1990] 1 AC 831United KingdomCited for the differing views of Lord Templeman and Lord Griffiths on the criteria for determining whether a duty of care arose.
Caparo Industries plc v DickmanHouse of LordsYes[1990] 2 AC 605United KingdomCited for the House of Lords' discussion on the necessary ingredients to establish a duty of care.
Henderson v Merrett Syndicates LtdUnknownYes[1995] 2 AC 145United KingdomCited as a return to the criteria of “reliance” and “assumption of responsibility” in determining a duty of care.
Bank of Credit and Commerce International (Overseas) Ltd v Price Waterhouse (No 2)UnknownYes[1998] Lloyd’s Rep Bank 58United KingdomCited for the suggestion that a new set of facts may be looked at by using each of the three approaches in turn.
Commissioners for Customs and Excise v Barclays Bank PlcEnglish Court of AppealYes[2005] 1 Lloyd’s Rep 165United KingdomCited for employing the same reasoning as Bank of Credit and Commerce International (Overseas) Ltd v Price Waterhouse (No 2).
RSP Architects Planners & Engineers v MCST Plan No 1075Court of AppealYes[1999] 2 SLR 449SingaporeCited for the principles governing the imposition of a duty of care for pure economic loss.
RSP Architects Planners & Engineers v Ocean Front Pte LtdUnknownYes[1996] 1 SLR 113SingaporeCited to emphasize that the question is not whether a duty was owed by A to B, but whether a duty was owed by A to B to avoid the loss incurred by B.
Anns v Merton London Borough CouncilUnknownYes[1978] AC 728United KingdomCited to clarify that the restatement of the principle in RSP Architects should not be construed as reverting to the two-stage test in Anns v Merton London Borough Council.
Fomento (Sterling Area) Ltd v Selsdon Fountain Pen Co LtdUnknownYes[1958] 1 WLR 45United KingdomCited for Denning LJ's observations on an auditor's duties.
Walker v HungerfordsUnknownYes(1987) 44 SASR 532AustraliaCited for Bollen J's observations on the duty of tax agents to prepare correct returns.
Sasea Finance Ltd v KPMGEnglish Court of AppealYes[2000] 1 All ER 676United KingdomCited for the English Court of Appeal's holding that it was an auditor’s duty to warn either the directors or some relevant third party of any irregularity or fraud likely to result in material loss to the company with a reasonable amount of promptitude.
Holman v JohnsonUnknownYes(1775) 1 Cowp 341; 98 ER 1120United KingdomCited for Lord Mansfield CJ's statement on the illegality defence.
Euro-Diam Ltd v BathurstUnknownYes[1990] 1 QB 1United KingdomCited for Kerr LJ's reaffirmation of Lord Mansfield's statement in Holman v Johnson that the ex turpi causa defence was applicable to a plaintiff who was “guilty of illegal (or immoral) conduct”.
Hegarty v ShineUnknownYes(1878) 14 Cox CC 145United KingdomCited as an example of a case where the illegality defence arose in the context of acts that were not considered criminal.
Kirkham v Chief Constable of the Greater Manchester PoliceUnknownYes[1990] 2 QB 283United KingdomCited as an example of a case where the illegality defence was unsuccessful.
Reeves v Commissioner of Police of the MetropolisUnknownYes[1999] QB 169United KingdomCited as an example of a case where the illegality defence was unsuccessful.
Vellino v Chief Constable of Greater ManchesterUnknownYes[2002] 1 WLR 218United KingdomCited for Sedley LJ's comments on the illegality defence.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
Income Tax Act (Cap 134, 2001 Rev Ed)Singapore

15. Key Terms and Keywords

15.1 Key Terms

  • Directors’ fees
  • Retained fees
  • Paid fees
  • IR8A forms
  • Form C
  • Tax agent
  • Auditor
  • Duty of care
  • Illegality defence
  • Ex turpi causa non oritur actio

15.2 Keywords

  • Negligence
  • Tax agent
  • Duty of care
  • Illegality defence
  • Directors' fees
  • Singapore
  • Tax returns

16. Subjects

  • Tort
  • Tax Law
  • Professional Negligence

17. Areas of Law

  • Tort
  • Negligence
  • Tax Law
  • Auditing
  • Contract Law